Fall 2018 Exam 1 Solution

Here are the final numerical results for each section of the exam. You can use them to check your work if you do the exam for practice. If you have trouble with the problems, or don't get the answers shown here, stop by during office hours or make and appointment and we can go over them.

Question 1

(a) P=$75, Q=4500; `Q_(Ai)`=105; `Q_(Ci)`=45; graph omitted.

(b) `P^s`=$57; `P^d`=$85; Q=2700; `\Delta PS_(Ci)`=-$648; tax burdens on: Ai=$950, Bi=$100; effective tax rates: Ai=0.76%, Bi=0.16%; tax is progressive.

Question 2

P=$1200, `Q_M`=18,000; `Q_U`=15,000; `Q_F`=3,000; `\Delta CS`=-$3.8 million; `\Delta PS_U`=+$2.7 million; `\Delta SS_U`=-$1.1. million; transfer to foreign workers=$600,000; overall `\Delta SS`=-$500,000; US consumers are hurt; US producers and foreign workers are helped.

Question 3

Market equilibrium: P=$1400, Q=200; efficient equilibrium: Q=220, `P^d`=$1320, `P^s`=$1500; subsidy rate=$180; `\Delta CS`=$16,800; `\Delta PS`=$21,000; `\Delta Rev`=-$39,600; `\Delta Ext`=$3,800; `\Delta SS`=$2,000.

Question 4

Extra revenue in L=$10,000; shipping subsidy to R=$2; shipping cost to R=$8; new prices and quantities if the policy were removed: `P_L`=$19, `P_R`=$22, `Q_L`=11,000, `Q_R`=4,000; changes in surplus: `\Delta CS_L`=+$10,500; `\Delta CS_R`=-$9,000; `\Delta SS`=+$1,500.